Thursday, May 28, 2009

I usually pay relatively close attention to the ins and outs of local politics, but I complete missed the website that Bart has set up to inform riders and taxpayers about the excesses of its current union contracts.

Bart announced today that it will hike fares in the face of the recession, essentially increasing the fare to ride to SFO so high that I doubt many people will continue to use the service. The high cost of riding Bart is directly related to its union pay and benefits. And, it might surprise many readers of this blog to find out that the Bart station agents and train "drivers" frequently make more than $100k a year when counting pay, benefits and overtime.

I realize that union-bashing is out of vogue with the rise of the Obama administration, but Bart is a prime example of how unions hurt pretty much everyone in the society except their own membership.

Unions even nonunionized poor people, because they make it more difficult for companies and governments to hire new employees. Sure, that's great for those who are already in the door, but for the rest of us it's terrible.

I applaud Bart management's effort to push back against the unions, and I encourage readers to look at that website and provide encouragement to management wherever possible.

I for one would like to see Bart demand real reductions in pay and benefits in the next contract, and I would be more than willing to suffer service interruptions during a strike to get there.

And, needless to say I would be overjoyed to ride a train driven by "scabs." If Bart got rid of its unions, I'd throw a party with all the money I'd save on my tickets.

Sunday, May 24, 2009

In the wake of the defeat of last week's propositions, the LA Times ran a column on the front page of its website essentially arguing that California's problem is that it doesn't tax the rich enough.

There are so many problems with this column that it's hard to know where to begin, but allow me to start with a bit of levity. In reading pieces like this, and those written about impending public-employee layoffs, it occurs to me that California may eventually wind up with just a single rich taxpayer paying for a single very well paid public employee.

This seems possible because the Leftists appear intent on shrinking both the number of people paying taxes in the state as well as constantly increasing public-employee pay and benefits, even if that means we can't afford as many of them.

The Times column makes a few points in this vein, each of which deserves a response.

The Times author points out that those in the top 1 percent of California earners paid 7.4 percent of their income in state taxes, while those earning under $20k per year paid 10.2 percent. The budget deal widens that gap to 7.8 and 11.1 percent.

I'm not going to argue with the author's facts, but I do not think that such a disparity is concerning or should be a cause for alarm. In fact, I view it as a pretty reasonable situation. And, if you net out the amount people pay into the system against the amount they get out of it, the situation would obviously look far more skewed in favor of the poor. I don't know the exact numbers, but it's a decent bet that people who make under $20k per year pay negative net taxes.

So why tax the poor at all? About 20 percent of Californians make under $20k per year. If, on average, they earn $15k and pay 10.2 percent in taxes, that's about $12B in annual taxes, which is enough to make a difference in state budgeting. Furthermore, taxing them provides some linkage between taxation and spending, meaning that they have some disincentive to vote for higher spending, as that spending will actually cost them something. Finally, the poor pay zero or negative federal taxes, so 10.2 percent is all they pay.

But why allow the rich to pay only 7 or 8 percent of their incomes in taxes? The answer is simply that states compete with one another to woo capital, and capital means wealthy people. California is doing a terrible job in this competition, regularly losing millionaire families to less tax-heavy states. And, lest we forget, when one includes federal taxes, the rich pay far, far more as a percentage of income than the poor.

The Times goes on to argue that the solutions to this "problem" include changing the percentage of legislators required to pass a budget to a majority, repealing term limits and changing Prop 13. In other words, we should do everything we can to make it easier to raise taxes.

And, by the way, if that were to happen, the increased taxes would hit the poor more than the rich. This is because legislators know from prior experience with an 11 percent tax bracket that raising income taxes significantly will trigger capital flight. That's why the recent budget deal focuses mostly on sales taxes, which hit the poor more than the rich.

I'm not one of those conservatives who argues that California's tax system can't be rationalized. I just don't trust the current crop of legislators to get that done. And I surely don't trust the constitutional convention some have proposed. Both mechanisms are guaranteed to be overrun by those who have the most to gain, and lose: public employee unions and their backers.

My suggestion would be to keep revenue around current levels, but to move from the boom-and-bust of income taxes to more stable revenue sources. In particular, I agree with the Times author that there is no rational reason to allow Prop 13 to protect commercial property owners. I feel the same way about second homes and houses owned by corporations. And, I disagree with provisions such as the one that allows those who inherit property to keep their parents' Prop 13 cost basis. The point of Prop 13 is to enable families to budget rationally when they buy their primary home, not to produce a random windfall for people.

Even worse, there are families who cannot afford to buy a home because Prop 13 disadvantages families when they first purchase homes, by setting the millage rate so high. While Californians on average pay only around 0.5 percent of their homes' values in property taxes every year, a family buying a new home in Oakland must pay 1.35 percent!

So, my advice to California is a straightforward revision of the taxation system:

Enact a flat, relatively low income tax rate of 6 percent, which is around the national average.

Create a lower tax rate for long-term capital gains, as does the federal government.

Set the corporate income tax similarly.

Set a relatively low sales tax rate of 6 percent.

Modify Prop 13 as described above.

Such a change would create a more stable revenue stream and make the state a more compelling place for capital to be invested.

Tuesday, May 19, 2009

Like Oakland, California continues to stumble toward some kind of reckoning with profligate governmental policies.

By voting no today, or simply failing to vote at all, voters can help bring a dose of reality to our "leaders."

Those who do plan to vote today should take a look at a couple articles published yesterday in the Wall Street Journal. Here is a link to the first article. It does a good job of explaining the basic facts underlying the current situation.

Even more importantly, voters should read this article, appropriately entitled "Soak The Rich, Lose The Rich."

Of interest are quotes like this one: "California in 2007 had the highest-paid classroom teachers in the nation, and yet the Golden State had the second-lowest test scores."

No one likes to talk about it, but the truth is that extra spending on education has virtually no impact on student achievement. The factors that actually matter include things like parental involvement and whether the parents went to college or not.

Liberals like to say that they support higher government spending and taxation because they want to give the poor and downtrodden an equal shot at success. In and of itself, this is not too problematic of a goal.

The problem is that, in California, government policies have not pursued these ends. Rather, the Democrats run the government exclusively for the benefit of the public-employee unions. That's why, from firefighters and police to teachers, our public employees receive far more in pay and benefits than the average nationwide.

Even worse, the state's constant pursuit of high-income taxpayers has finally begun to push us irredeemably into the red. Consider this: Rush Limbaugh famously announced that he would no longer work in New York state because of the state's planned income tax increase. And, just yesterday the owner of the Buffalo Sabres made a similar announcement.

In the latter case, the lost revenue to New York will total $13,000 a day, or nearly $5 million a year. How many high-income exits like this does it take for a state to see a significant deterioration of revenue?

And, more importantly, consider the fact that New York is only planning to raise its income tax rate to about 9 percent. California's tax currently stands at nearly 10.5 percent! And, public employee unions continue to agitate that taxes aren't high enough.

Put another way, how many people making $100 million a year, and thus paying $10 million in state taxes, need to move to Nevada or Washington state, where the tax rate is zero, before it puts a big hurt in California's ability to pay the bills.

The truth is this is already happening, big time. And no amount of Leftism is going to change that. That is why the legislative compromise earlier this year focused mostly on sales taxes. They know that income taxes are pushing people to leave. So, they're doing what they always do -- soak the poor and middle class once there are no more rich to hit up.

California needs to lower its spending and lower its taxes. And until it starts down that path, I see no reason for voters to go along with any proposals. If it requires a bankruptcy to get out from under whatever ridiculous pension agreements we've made with the public employees, then I'm fine with that.

The reckoning is coming, and voting no on these propositions brings it still closer. And that is good for all of us who don't want to see sales taxes at 15 percent.

Thursday, May 14, 2009

I've obviously been offline quite a bit lately tending to some things, but I wanted to let readers know that our local Chrysler dealer on Broadway will be closing as part of Chrysler's round of dealership closings.

Here is a link to the full list of closures. Apparently Oakland's is one of five or so in the Bay Area, including one in Livermore.

I can't imagine this will be good for Oakland, and I would guess that the GM dealership is going to close too. We'll see...